OTC interest rate derivatives turnover in April 2022

Triennial Central Bank Survey

27 October 2022
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1. BIS Triennial Central Bank Survey

The BIS Triennial Central Bank Survey is the most comprehensive source of information on the size and structure of global over-the-counter (OTC) markets in foreign exchange (FX) and interest rate derivatives. The Survey aims to increase the transparency of OTC markets, helping central banks and market participants monitor global financial markets, and to inform discussions on reforms to OTC markets.

Activity in FX markets has been surveyed every three years since 1986, and in OTC interest rate derivatives markets since 1995. The Triennial Survey is coordinated by the BIS under the auspices of the Markets Committee (for the FX part) and the Committee on the Global Financial System (for the interest rate derivatives part). It has been supported through the Data Gaps Initiative endorsed by the G20.

This statistical release covers the interest rate derivatives part of the Triennial Survey of turnover that took place in April 2022. Central banks and other authorities in 52 jurisdictions participated in the Survey (see page 15).1 They collected data from more than 1,200 banks and other dealers and reported national aggregates to the BIS for inclusion in global aggregates. Turnover data are reported by the sales desks of reporting dealers, regardless of where a trade is executed, and on an unconsolidated basis, ie including trades between related entities that are part of the same group.

The data are subject to revision. The final turnover data, as well as several special features that analyse them, will be released with the BIS Quarterly Review in December 2022. A separate survey on outstanding amounts as of June 2022 will be published in November 2022.2

2. Turnover in OTC interest rate derivatives markets

Turnover in single currency OTC interest rate derivatives averaged $5.2 trillion per day in April 2022 (Graph 1 and Table 1). This was 19% lower than in the April 2019 Survey ($6.4 trillion per day), although the present survey took place during a period of changing expectations about the path of future interest rates in major currencies, lingering Covid-19 related disruptions, and rising geopolitical tensions following the Russian invasion of Ukraine.4

The most significant factor contributing to the decline in turnover is the continuing shift away from Libor for major currencies. From January 2022, the publication of Libor for several key currencies ceased.5 This reform undercut the turnover of forward rate agreements (FRAs), which reference forward-looking rates such as Libor. It also affected the mix of instruments in global turnover (discussed in the next section), as well as the distribution of trading in particular currencies and in particular locations (discussed in the following sections). Changes in the reporting population had only a minor impact on the aggregate turnover figures.

Turnover by instrument

As market participants shift from using Libor as a reference rate to overnight risk-free rates (RFR), their need to hedge interest rate risk is changing. Before this transition, swaps typically referenced Libor with maturities longer than one day (usually three-month or six-month Libor), and had floating leg payments fixed for a longer term than similar overnight index swaps (OIS) that reference overnight RFRs. As a result, the floating rate risk in a Libor swap (ie the "fixing risk") is larger than in an OIS. To hedge that risk, market participants often used instruments such as FRAs. Thus, the transition from Libor to RFRs effectively reduced the hedging needs associated with Libor swaps.

The impact of the ongoing Libor transition is clearly evident in the 2022 Triennial Survey results.6 The most prominent change since the 2019 Survey was a virtual cessation of trading of FRAs that reference Libor. The daily turnover of FRAs had contributed $1.9 trillion, or 30%, to the global total in the 2019 Survey, but only $0.5 trillion (10%) in the 2022 Survey (Graph 1, left-hand panel, and Table 2).7 FRAs denominated in US dollars led this decline (as discussed below).

Given the lower floating rate risk in OIS compared with other swaps, the drop in FRA turnover in the 2022 Survey was not matched by an equivalent increase in turnover in other OTC instruments. Turnover in swaps (including OIS) grew to $4.5 trillion per day in 2022 from $4.1 trillion in 2019 (Graph 1, left-hand panel). Turnover of swaps denominated in euros expanded the most, reaching $1.3 trillion per day in 2022, up 38% from April 2019. Swaps denominated in US dollars also grew, albeit by less (17%), to reach $2.2 trillion per day in 2022, and may have reflected dealers replacing USD FRAs with these contracts.8 Turnover of swaps denominated in other currencies, mainly JPY, SEK and CAD, declined over this period. As a result, the share of EUR swaps in total swap turnover rose to 28% (from 22% in 2019), and that of USD swaps increased to 49% (from 46% in 2019).

Turnover of options and other interest rate products declined noticeably in the April 2022 Survey. At $238 billion per day (or 5% of global turnover) in 2022, turnover of these contracts was roughly half of what it was in April 2019 ($456 billion per day, or 7% of total turnover), but still greater than the values recorded in the 2016 ($166 billion) and 2013 ($174 billion) Surveys.

Market-facing vs non-market-facing trades

The 2022 Survey introduced new dimensions to more cleanly separate "market-facing trades", ie deals with customers and other unrelated entities that contribute to price formation in the market. This was in response to the outsized growth in turnover in the 2019 Survey (Graph 1), when dealers in several reporting jurisdictions noted that "non-market-facing trades" contributed significantly to turnover. These include compression trades, whereby dealers optimise their portfolios by replacing existing contracts with new ones to reduce notional amounts while keeping net exposures unchanged; and "back-to-back" trades, which are deals that automatically follow trades with customers to shift risk across sales desks.9 In the 2022 Survey, these trades were for the first time separately reported as "of which" items without breakdowns by counterparty sector or currency.

Breaking out these trades yields a more accurate measure of the turnover that leads to price formation, which is the relevant metric for gauging market depth in particular instruments. Non-market-facing trades, ie back-to-back and compression trades, contributed $798 billion, or 15%, to global turnover across all instruments in April 2022 (Graph 1, right-hand panel, blue dot), but with different contributions across instruments (Graph 2). Such trades accounted for roughly 15% of turnover of swaps, and 8% for FRAs. By contrast, over 30% of the total turnover of options and other products is non-market-facing (although turnover of options is a small share of total turnover).

Turnover by currency

The transition from Libor and the subsequent contraction in FRA turnover contributed to relatively large shifts in the currency shares within the total turnover of interest rate derivatives. Turnover of FRAs denominated in US dollars, which typically reference Libor rates, had reached $1.3 trillion in the 2019 Survey (66% of total FRA turnover). In the 2022 Survey, however, turnover averaged a mere $26 billion (5% of total FRA turnover). By contrast, turnover of euro-denominated FRAs, most of which reference Euribor rates that continue to be published, expanded over this period to $421 billion per day, or 85% of total FRA turnover (Table 4).

This asymmetrical impact of the Libor reform on FRAs denominated in US dollars led to a relatively sharp decline in the US dollar's share in total turnover. Whereas turnover in US dollar-denominated contracts accounted for roughly half of the global total in 2019 and 2016, its share fell to 44% in April 2022 (Graph 1, centre panel, and Table 3). At the same time, turnover in euro-denominated contracts amounted to $1.8 trillion, or 34% of total turnover in 2022, up from 25% in 2019.

However, in the turnover of contracts other than FRAs, ie interest rate swaps (including OIS), options and other products, both the US dollar and the euro gained ground. Contracts denominated in US dollars accounted for 48% of total non-FRA turnover in April 2022, up from 44% in 2019. Similarly, the euro share in this total grew to 28%, up from 26% in 2019. Conversely, other currencies lost ground. Contracts denominated in the pound sterling fell to 7% from 8% of global non-FRA turnover; in Australian dollars to 6% from 9%. Japanese yen-denominated contracts fell to 2.5%.

Turning to currencies in emerging markets, Korean won-denominated contracts (all instruments) were the most actively traded, at $48 billion per day in April 2022 (0.9% of total global turnover), up from $27 billion in April 2019. This was followed by the Czech koruna, daily turnover of which increased materially to $32 billion (0.6%) in 2022 from $12 billion (0.2%) in 2019. Turnover in contracts denominated in Chinese renminbi fell slightly, to $30 billion in 2022 from $33 billion in 2019.

Turnover of contracts in other major Asian currencies remained relatively stable between Surveys. Turnover for the Indian rupee grew to $23 billion per day (from $17 billion in 2019), while that for the Singapore dollar was $15 billion per day, unchanged from 2019. By contrast, turnover of Hong Kong dollar-denominated contracts fell to $11 billion from $18 billion in 2019.

In Latin American currencies, turnover diverged. Turnover in contracts denominated in Mexican peso fell slightly to $22 billion in April 2022 (from $23 billion in 2019), and that in Brazilian real fell to $2 billion per day (from $8 billion in 2019). By contrast, turnover in contracts denominated in Chilean peso rose from $1 billion to $4 billion, that in Colombian pesos from $0.5 billion to $1.7 billion, and that in Argentine pesos from $0.02 billion to $1.4 billion.

In some central and eastern European currencies, turnover also increased significantly. Daily turnover in contracts denominated in Polish zloty almost doubled, from $8 billion in 2019 to $15 billion in April 2022. For the Russian rouble, the figures in the 2022 Survey are far from complete, since turnover at sales desks in Russia is not included.10 That said, turnover in rouble contracts reported by dealers in other locations increased by 41%, to reach $1.0 billion ("net-net" basis).

Turnover by counterparty

In each of the previous four Triennial Surveys, the share of trading among reporting dealers has fallen while trading with other financial institutions has been on the rise (Table 2). This trend continued in 2022, as turnover with other reporting dealers (Graph 1, right-hand panel) decreased more rapidly than deals with other counterparties.11 As a result, the share of turnover with reporting dealers in global turnover fell to 19% in April 2022, down from 24% in 2019 and 44% in 2010 (Table 2). At the same time, the share of turnover with other financial institutions rose to 75% in 2022, up from 70% in 2019 and 46% in 2010. The share of deals with non-financial customers has been relatively stable in recent decades, accounting for 5% of global turnover in 2022, down slightly from 6% in 2019 and 11% in 2010.

Geographic distribution of turnover

The Libor reform also contributed to changes in the shares of locations where interest rate derivatives are traded. In 2019, dealers located in the United States and the United Kingdom reported more than 90% of the global turnover of FRAs. The massive contraction in USD FRA turnover in April 2022 thus contributed disproportionately to declines in overall turnover in these two locations.12 Sales desks in the United Kingdom again recorded the highest average daily turnover in April 2022 across all interest rate derivatives on a "net-gross" basis (Graph 3 and Table 5).13 However, their turnover of $2.6 trillion accounted for 46% of the global "net-gross" total, down from 51% in 2019. Similarly, while the United States remained the second largest trading location in April 2022, with turnover of $1.7 trillion per day, its share in the global "net-gross" total fell to 29% from 32% in 2019.

The Libor reform, however, does not fully explain the changes in these relative shares. Indeed, daily turnover in the United Kingdom in products other than FRAs also declined. At $2.3 trillion in April 2022, trading there accounted for 43% of the global "net-gross" total, lower than in the 2019 Survey (52%) but comparable with the shares in earlier Surveys (which ranged from 35 to 48% between 2007 and 2016). USD-denominated contracts (excluding FRAs) reported by the United Kingdom declined by 18% from 2019, to $581 billion per day in April 2022 (Graph 3, centre panel). This was more than offset by the larger turnover of these instruments in the United States, which grew by 21% to $1.6 trillion per day. As a result, the United Kingdom's share in the global "net-gross" total for these instruments dropped to 24% in 2022 from 33% in 2019. Still, this share remained higher than that in the previous surveys (which range between 9% to 19%).

A similar and more prominent trend is evident for instruments denominated in euros. Turnover (excluding FRAs) reported by the United Kingdom amounted to $1 trillion in April 2022, down 18% from 2019 (Graph 3, lower panel). At the same time, turnover reported by dealers in euro area countries – particularly in Germany and France – more than tripled, from $124 billion in 2019 to $385 billion in 2022 ("net-gross" basis). Euro-denominated contracts (excluding FRAs) traded in euro area countries accounted for more than a quarter of the global total, the highest share since 2010.

Turnover in the major Asian financial centres – Hong Kong SAR and Singapore – diverged. Turnover (in all instruments) in Hong Kong SAR fell to $321 billion per day in April 2022 (5.6% of the global total), from $436 billion in 2019 (6%). By contrast, turnover in Singapore reached $156 billion April 2022 (2.7% of the global total), up from $116 billion (1.6%) in 2019.

Elsewhere, the growth in turnover since 2019 was mixed. Turnover in Australia increased to 2% of the global total in 2022, from 1.3% in 2019. And that in Japan fell to 0.9% of total turnover in 2022, down from 1% in 2019. The share of total turnover reported by dealers in Canada dropped slightly (to 1.3% from 1.7%).

Sales desks in EMEs continued to account for a small share of global interest rate derivatives turnover. Only China (0.2%), South Africa (0.2%), Korea (0.2%), India (0.1%), Mexico (0.1%), Bahrain (0.1%) and the United Arab Emirates (0.1%) reached global market shares of 0.1% or more.14

1 One jurisdiction has submitted partial data; final data will be published in the December BIS Quarterly Review.

2 The BIS semiannual OTC derivatives statistics, which capture outstanding amounts, are compiled with data from 12 jurisdictions and cover more than 90% of global outstanding positions. Every three years, additional data from all jurisdictions participating in the Triennial Survey are included.

3 Figures on a "net-net" basis are corrected for local and cross-border inter-dealer double-counting. Figures on a "net-gross" basis are corrected for local inter-dealer double-counting only.

4 Turnover at sales desks in Russia, which accounted for less than 0.01% of total turnover in 2019, were not included in the 2022 Survey. At the same time, turnover in the Dubai International Financial Centre was included for the first time in 2022, yielding more complete coverage of turnover in the United Arab Emirates. Regarding methodology, some dealers revised their reporting of back-to-back trades between Surveys, leading to somewhat lower reported turnover figures in 2022. Exchange rate movements between 2019 and 2022 had a minor impact on aggregate turnover (   Table 1).

5 Publication of 24 Libor settings, including the GBP, EUR, CHF and JPY Libor panels and the one-week and two-month USD Libor settings, ceased at end-2021. Certain key USD rates that support the rundown of legacy contracts will cease only at end-June 2023. (see    FSB Statement to Support Preparations for LIBOR Cessation). There is currently no plan to discontinue Euribor rates, which are forward-looking interbank lending benchmark rates derived from European banks.

6 See page 17 in Annex B for a description of the instruments captured in the Triennial Survey.

7 The outstanding notional amount of FRAs contracted sharply in the second half of 2021, as investors prepared for Libor benchmarks to be phased out at the year-end. See BIS, "OTC derivatives statistics at end-December 2021", May 2022.

8 Similarly, dealers may have turned to exchange-traded derivatives (XTD) as a replacement for FRAs; turnover of XTD was notably higher in April 2022 than in April 2019 (   Table 1).

9 Back-to-back deals are linked deals where the liabilities, obligations and rights of the second deal are exactly the same as those of the original deal. They are normally conducted between affiliates of the same consolidated group to facilitate either internal risk management or internal bookkeeping. Back-to-back trades that involve other entities outside the group are also captured here, but not in related-party trades. For more background on compression trades, see A Schrimpf, "Outstanding OTC derivatives positions dwindle as compression gains further traction", BIS Quarterly Review, December 2015; and T Ehlers and E Eren, "The changing shape of interest rate derivatives markets", BIS Quarterly Review, December 2016.

10 In the 2019 Survey, sales desks in Russia accounted for only 0.008% of global turnover in all currencies, but for 40% of the reported global total for contracts denominated in the rouble.

11 The Libor reform and subsequent contraction in FRA turnover seems have contributed little to the overall shifts in counterparty shares. Turnover in FRAs consists disproportionally of trades with other financial institutions (70% in 2019), followed by trades with other reporting dealers (19%) and with non-financial customers (11%). Between the April 2019 and April 2022 Surveys, FRA turnover dropped by roughly 75% with other financial institutions and with reporting dealers, and by 50% with non-financial customers.

12 Turnover of FRAs in the United States declined substantially despite the fact that several USD Libor fixings will continue to be published until 2023. This follows from supervisory guidance in the United States that encouraged "....banks to cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021." (   Statement on LIBOR Transition – November 30, 2020 (federalreserve.gov).

13 "Net-gross" turnover is adjusted for inter-dealer trades within the same jurisdiction, but not for cross-border trades between dealers. All turnover numbers by trading location are reported on a "net-gross" basis.

14 In 2022, both the Central Bank of the United Arab Emirates and the Dubai International Financial Centre reported data, while in 2019 only the central bank reported.